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Perhaps the only positive aspect of the COVID-19 shutdowns, at least from a commercial leasing perspective, is how it made landlords aware of just how dependent on their tenants they are. The real winners of the pandemic were the landlords that found a way to work together with tenants to adjust their leasing arrangements so as to ensure their mutual survival. That approach could be the formula for surviving not only public health emergencies but other unforeseen crises that pose a fundamental threat to a tenant’s business.
Jump-start your leases to prepare for tenant demand and legal compliance.
With electric vehicle (EV) purchases on the rise, a new fixture has begun to appear in the parking lots of office buildings, shopping centers, medical facilities, and other commercial properties across the country: the EV charging station. The Department of Energy estimates that as of 2022, 46,000 commercial EV stations have been installed in the U.S., as compared to just 10,700 in 2014. Those numbers are expected to increase dramatically in the next few years.
Percentage rent tenants are typically required to give landlords the monthly sales reports they use to calculate their percentage rent. All too often, though, the tenant provides only its gross sales figure—the amount on which percentage rent is calculated under the lease agreement. It omits sales from transactions that you’ve agreed to exclude from gross sales, such as discounts to sales provided to its employees. And that can cause problems. For one thing, tenants may inadvertently or deliberately omit transactions that probably should count as gross sales.
One of the few positives to emerge from the pandemic for commercial leasing was how it got landlords and tenants to set aside historical mistrust and work together for their mutual welfare and survival. While the pressing issue at the height of the COVID-19 crisis was restructuring rent obligations, there are lots of other leasing issues where this approach could do both sides a world of good. Among these are lease provisions addressing insurance and responsibility for fire and other losses to the rental property.
Working from home and other post-COVID business realities have made many office tenants reluctant to sign a long-term lease. One way to overcome this is by offering tenants the option to terminate the lease early if the rent becomes unaffordable or the space becomes unnecessary. But while offering early termination options can give you a significant competitive edge, it can also cost you a boatload of money. That makes it essential to ensure that you get fair compensation for providing termination rights.
It costs a lot of money to maintain a heating, ventilating, and air conditioning (HVAC) system. There’s also a lot at stake. Keeping the HVAC system humming is crucial to maintaining comfort, ensuring air quality, and, in some cases, preserving tenants’ stored inventory. Accordingly, HVAC inefficiencies and breakdowns are a frequent source of landlord-tenant disputes, including potential constructive eviction claims. That’s why it’s essential for landlords and tenants to address the issue of responsibility for HVAC maintenance and repair before signing the lease.
Pet rules in a commercial lease? At first, I thought this was a terrible idea for an article. After all, the vast majority of commercial landlords in the U.S. don’t permit pets on the property—to the extent they even consider the issue at all. And it was for that very reason that I came to recognize why pets and commercial leasing is such a compelling idea, particularly in these times. Allowing pets might be just the unique amenity you need to compete successfully for tenants.
With a recession looming, commercial landlords and tenants may once again need to exhibit the flexibility they displayed to get through the COVID-19 pandemic. While helping tenants meet their rent obligations will be the first-choice approach, landlords also need to be prepared in case tenants default. Rather than automatically seeking eviction, landlords may need to consider the possibility of letting the tenant remain in the space and gradually pay off what it owes, either with or without interest. Here’s how to implement such a workout strategy.
Offering ROFOs is a great way to attract flourishing businesses. But it comes at a price.
Moving to a different building can be costly and disruptive. Accordingly, tenants that are growing rapidly may seek rights to expand within the building in case they run out of space. One way to accommodate this need is to grant what’s called a Right of First Offer (ROFO) giving the tenant dibs on space that becomes available in the building.
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